Can Banks Keep Up?

As the financial industry adapts to various digitization trends, my team continues to field inquiries from bank CEOs and their executive teams specific to emerging technology strategies and opportunities. One way we attempt to benchmark current interests (and concerns): an annual research project. This year, we evaluated industry attitudes toward core providers and fintech firms, including marketplace lenders like Lending Club, in our just-released Bank Director Technology Survey. While a number of findings jumped out at me, three really caught my eye:

Eighty-one percent of bank chief information officers and chief technology officers responding say that their core processor is slow to respond to innovations in the marketplace, making it even more difficult for the banking industry to keep up with shifting consumer expectations regarding technology.

Thirty percent of bank CIOs and CTOs report that their bank has pulled back on plans to integrate a more innovative product, service or delivery channel due to the inability or unwillingness of the bank’s core processor to support that activity.

Banks are highly reliant on core providers for services beyond core processing, which at its most basic contains vital customer data and processes all customer transactions. Ninety-six percent of respondents say their bank uses their core provider for additional services, including mobile banking (71 percent) and bill pay (75 percent).

Our 2016 Technology Survey, sponsored by the technology solutions provider CDW, reflects the opinions of 199 board members and senior executives of U.S. banks surveyed in June and July. The size of institutions polled fell between $250 million and $20 billion in assets. In addition to the points shared above, we found:

Thirty-one percent of respondents have converted their bank’s core technology within the past five years. Forty-two percent converted their core more than 10 years ago. Respondents report that their bank works with a median of five technology firms, including the core provider.

Sixty-one percent of participants see fintech firms as both competitors and partners.
Online marketplace lenders should be more heavily regulated, say 60 percent of respondents. Forty-one percent worry that they’ll lose loans to these lenders, but 18 percent don’t think these lenders have long-term viability.

Opinions are mixed on the impact that blockchain—the underlying technology behind the digital currency bitcoin—will have on the banking industry. Twenty-four percent believe it will impact all banks. However, 57 percent don’t understand blockchain enough to form an opinion, or have never heard of the technology.

Finally, cybersecurity continues to loom large. Having a strong technology infrastructure in place to protect against cyberattacks remains the top technology concern for survey participants, at 72 percent. Seventy percent indicate that their bank could better use data to serve the needs of existing customers, or identify new customers. Seventy percent of respondents believe that technological innovation is a priority for their board, but less than half discuss technology at every board meeting. Thirty-four percent of respondents describe themselves as early adopters of technology.

The full survey results are available online at BankDirector.com, and will be featured in the 4th quarter 2016 issue of Bank Director magazine.